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cailianshe news, september 24 (editor: xiaoxiang)a report from the new york federal reserve showed that liquidity in the $27 trillion u.s. treasuries market, the world's largest government bond market, has returned to the level before the federal reserve began raising interest rates in 2022.

in the past few years, as the federal reserve has raised interest rates aggressively to curb inflation, u.s. government bond prices have often fluctuated sharply, and liquidity (the ability to conduct transactions without significant changes in asset prices) has deteriorated significantly. this situation even caused concern among u.s. treasury secretary yellen.

however, michael fleming, head of capital markets research at the new york fed's research and statistics department, published an article on the new york fed's liberty street economics blog on monday, saying that common indicators for assessing trading conditions show that liquidity in the u.s. treasury market improved in 2024 and has gradually returned to the level before the start of the monetary policy tightening cycle.

fleming notedbid-ask spreadthe bid-ask spread is the difference between the highest price a buyer is willing to pay for a security (the bid price) and the lowest price a seller is willing to accept (the ask price).

he said that after the regional banking crisis in the united states in march last year, the bid-ask spread in the bond market had widened, but since mid-2023, the bid-ask spread has remained narrow and relatively stable.

fleming also said order book depth, or the average number of securities available to sell or buy at the best bid or offer price, has also increased since march last year, although it fell slightly in early august after a weaker-than-expected nonfarm payrolls report and a surprise rate hike by the bank of japan shook financial markets.

finally, fleming also observed an improvement in the price impact of transactions, which assesses the change in price when buyers and sellers initiate a transaction. after a sharp rise in price impact during the banking turmoil in march 2023, the indicator has fallen back to the level of late 2021 and early 2022, although it rose again in early august 2024.

u.s. regulators and the treasury department have introduced a series of reforms in recent years to improve trading conditions and avoid chaos in the world's largest bond market.

fleming noted that improved liquidity in bond markets is being accompanied by reduced volatility.however, he added that alternative measures of treasury liquidity, which measure the deviation between certain treasury yields, have been deteriorating. it remains appropriate to closely monitor liquidity in the treasury market and continue to work to improve market resilience.

in fact,judging from the recent trends in the u.s. treasury bond market, although the federal reserve announced a 50 basis point interest rate cut last week, which attracted much attention from the industry, the overall trend of the u.s. treasury bond market has been quite calm.bond market investors continue to believe that the world's largest economy will not fall into recession in the short term. long-term u.s. treasury yields rose instead of falling after the interest rate cut, and the yield curve steepened.

on monday, u.s. treasury yields of various maturities continued to consolidate in a narrow range, with the 2-year treasury yield falling 0.7 basis points to 3.597%, the 5-year treasury yield rising 1 basis point to 3.512%, the 10-year treasury yield rising 1 basis point to 3.754%, and the 30-year treasury yield rising 0.9 basis points to 4.094%.

longer-term treasury yields (from seven to 30 years) hit three-week highs during the day. this pushed the yield curve further steeper, with the 2-year/10-year treasury yield spread hitting 17.9 basis points, the widest level since june 2022, and closing at around 15.7 basis points. the yield curve is bearish, with long-term bond yields rising faster than short-term bonds, suggesting that investors expect inflation expectations to pick up at some point in the future.

(cailianshe xiaoxiang)